Roughly 30% of SME (Small to Medium Enterprises) are negatively affected by late or unpaid customer invoices, according to a 2019 survey by Sage Accounting. Some companies simply lack the resources to pursue late bills. Others may experience a cash flow shortfall because their revenue is less than outstanding invoices. For the SME, this can cause many operational issues, in addition to sleepless nights for business owners.
Factoring, or invoice financing, can be a good fit for companies with unpaid invoices. A factor buys outstanding invoices—and the risk associated with them—for less than the full amount owed. The seller is able to quickly receive cash in exchange for the invoices—often within 24 hours of the sale. The factor then seeks full payment plus possible fees from the invoiced customer.
Business owners often overlook invoice financing as they have heard—or believe— common factoring myths. These include paying high fees or not qualifying because of low business credit scores. Contacting a reputable lender about factoring can educate a borrower about their options, negotiating terms, and even open the door to future capital infusion.
Any company can use factoring to improve liquidity, competitiveness, and cash flow. A business doesn’t require a good credit rating to sell invoices, as the factor only considers the creditworthiness of the customer debt owed. A company which uses factoring also doesn’t need to take on debt to obtain working capital. Invoice financing can be beneficial for SME in industries with long billing periods, for companies that are growing quickly and need working capital, or cash-strapped companies that risk defaulting on loan payments.
Contact a lender for more information about factoring. The opportunity to leverage owed debt and remain cash flow positive is a tremendous tool for the SME with recurring expenses. With a factoring program in place, you can focus on growing your company and be reassured you have the money in hand to take care of expenses without putting your company in debt.
Resources:
Globe News Wire: Invoice Factoring Myths: http://bit.ly/3twTG7p
Investopedia: What is a Factor?” https://www.investopedia.com/terms/f/factor.asp
Sage: Late Payments: https://www.sage.com/en-us/blog/late-payments-get-paid-faster/
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